(Corrects second paragraph to clarify that foreign investors
can buy up to $25 billion across all government bond maturities
and specifies previous investment limits on treasury bills)
By Manoj Kumar
NEW DELHI, March 23 (Reuters) - India will ease restrictions
for foreign institutional investors in federal and corporate
bonds next month to attract inflows and help fund a widening
current account deficit, Finance Minister P Chidambaram said on
Under the new rules, foreign investors can invest up to $25
billion in government bonds, including both long- and short-term
debt such as treasury bills. Previously there had been
investment restrictions on T-bills of up to $10 billion. The cap
on corporate bonds remains at the current level of $51 billion,
but separate limits on different types of corporate debt have
"Effect from April 1, there will be two baskets - one of $25
billion for government securities and one $51 billion for all
corporate bonds," Chidambaram told a conference.
Currently, foreign institutional investors can invest up to
$25 billion in corporate infrastructure bonds, $20 billion in
other listed corporate bonds, and $5 billon could be invested by
other foreign investors including sovereign wealth funds,
pension and insurance funds.
India restricts foreign access to its debt markets because
of its reluctance to owe money to overseas investors, and has a
complicated system of categories for debt as well as
restrictions on which types of investors can bid for the debt.
But a record high current account deficit - which hit 5.4
percent of the GDP in the quarter ending September - has
prompted the government to take steps to increase capital
inflows into country's debt and stock markets.
New Delhi will review the foreign investor cap on corporate
bonds when 80 percent of the limit is reached, Chidambaram said,
adding it would help large investors plan their investment.
The government may further increase the cap on FIIs to
invest in government bonds, depending on demand and
macro-economic requirements, Chidambaram said.
"The annual enhancement of the government bond limit will
remain within 5 percent of the gross annual borrowing of the
central government excluding buy backs," he said.
The government plans to borrow a gross 5.79 trillion rupees
in 2013/14, excluding the 500 billion rupees of bonds it will
sell to fund a buy back.
Chidambaram also said the current corporate bond auction
mechanism will be replaced with "on-tap system" that is used for
India's current account gap is expected to touch an all-time
high for the fiscal year that ends in March.
(Reporting by Manoj Kumar: Writing by Shamik Paul; Editing by